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Securitization, competition and efficiency

Author

Listed:
  • Jung-Hyun Ahn

    (Pôle Finance Responsable - Rouen Business School - Rouen Business School)

  • Régis Breton

    (LEO - Laboratoire d'économie d'Orleans [2008-2011] - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article analyzes the motivation for loan securitization and its effect on loan market efficiency. We consider a two-period loan market competition model in which period 2-competition is affected by the winner's curse. This increases ex ante competition for a greater initial market share. Given that securitization transfers a part of the return from loans to other investors, banks can use it as a tool to signal that they will reduce monitoring, for the purpose of softening ex ante competition. Thus, securitization adversely affects loan market efficiency while it leads banks to increases collectively their profits. This effect is driven by primary loan market competition, not by the exploitation of informational asymmetries in the secondary market for loans.

Suggested Citation

  • Jung-Hyun Ahn & Régis Breton, 2010. "Securitization, competition and efficiency," Post-Print hal-00650848, HAL.
    • Handle: RePEc:hal:journl:hal-00650848
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    Cited by:

    1. Kevin X. D. Huang & Zhe Li & Jianfei Sun, 2021. "Lending Competition And Loan Sales: A Macroeconomic Analysis Under Directed Search," Economic Inquiry, Western Economic Association International, vol. 59(2), pages 648-661, April.
    2. Li, Zhe & Sun, Jianfei, 2011. "Bank competition, securitization and risky investment," MPRA Paper 34173, University Library of Munich, Germany.
    3. Kevin x.d. Huang & Zhe Li & Jianfei Sun, 2018. "Bank Competition, Directed Search, and Loan Sales," Vanderbilt University Department of Economics Working Papers 18-00001, Vanderbilt University Department of Economics.

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